(Corrects break-even share price to $28.70 in paragraph 3)
By David Lawder
WASHINGTON, Sept 30 (Reuters) - American International Group's (AIG.N) plan to exit government support could cut the cost of the U.S. Treasury's bailout program by half, to less than $50 billion based on current market valuations, a senior Obama administration official said on Thursday.
The plan to convert the Treasury's preferred shares in the bailed out insurer to common stock could yield a profit of around $16.5 billion for taxpayers, compared to a previously estimated loss of about $45 billion, the official said.
Under a Federal Reserve and Treasury bailout that exceeded $180 billion at one point, the Treasury invested about $49.1 billion from TARP into AIG, including capitalized interest costs. Based on an actual cash cost of about $47.5 billion, the Treasury views $28.70 at its break-even share price for AIG.
On Thursday, AIG shares were up more than 1 percent to $38.65, a price that hangs a $64 billion valuation on the government's stake.
The administration official cautioned, however, that any declines in AIG's share price could reduce taxpayer profits. But Treasury Secretary Timothy Geithner briefed President Barack Obama that the internal cost estimate for the Troubled Asset Relief Program could comfortably fall by around half from its previous level of around $101 billion, the official said.
The administration is likely to make new TARP cost estimates in conjunction with the end of the government's fiscal year on Thursday and the expiration of authority for new TARP investments on Sunday, the official added.
Under the conversion plan announced earlier on Thursday, the Treasury expects to receive about 1.655 billion common shares in AIG, lifting its stake in the insurance giant to about 92.1 percent from 80 percent.
The conversion, which is subject to successful sales and stock offerings for AIG's foreign assets and repayment of Federal Reserve loans, is being done to give the Treasury a more saleable asset than the relatively illiquid preferred stock it received in the bailout.
The Treasury is still weighing options on how best to sell off the shares, a process that is not expected to start until 2011, the official said.
So the projected cost just went from 800 billion taxpayer dollars to 50 billion, and still headed lower.
And we got to keep our major corporations in business (including GM).
If the right-wing loudmouths hadn’t hammered that this was “Obama’s plan” (which it isn’t – Bush created it) they could take some of the credit.
Lies blow up in your face, boys.
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